Biofuel on the News

Friday, April 27, 2007

Indonesia pushes ahead with biofuel development

By Susannah Maio
OPEC Bulletin, March 2007

Responding to the needs of its fast-growing population and wishing to diversify its energy sources, Indonesia is actively promoting an expansion of its biofuel industry. Alhilal Hamdi, Head of the National Team for Biofuel Development, sees this emerging sector as a means of creating jobs, reducing poverty, improving the environment and increasing energy security.

A nascent biofuels industry

With over 219 million inhabitants, Indonesia is important not only for its size but also for its position on the global energy scene. A Member Country of OPEC since 1962, it has played a key role in the petroleum and natural gas industries for almost half a century, despite declining stocks of crude oil in recent years. Having become a net importer of ‘black gold’ in 2005, Indonesia is now step-ping up to a new challenge and aiming to meet 17 per cent of its energy mix by2025 from renewable resources, with biofuels representing a five per cent share.

Biofuels are usually subdivided into two catego-ries: biodiesel, which is produced from vegetable oils, and bioethanol, which is made by fermenting sugars and starches contained in plants such as sugar cane, cassava and corn. Indonesia plans to reach a produc-tion capacity of 10.22 million kilolitres of biodiesel and 6.28m kl of bioethanol by 2025, thus meeting 20 per cent of total domestic diesel consumption and 15 per cent of premium fuel consumption by the same year.

As a step towards reaching these targets, six million hectares of land will be developed for the cultivation of sugar cane, cassava, jatropha curcas and oil palm, the latter being the largest source of oil for biodiesel in the country.

Palm oil, which is derived from the flesh of the palm’s fruit, is the most widely used vegetable oil globally for providing energy. It is no wonder that both Indonesia and Malaysia, neighbouring countries that enjoy the same tropical climate ideal for growing palms, have given over vast tracts of land to palm oil plantations. Together, these two nations account for approximately 90 per cent of global production and trade in palm oil, according to an October 2006 report by the United Nations Food and Agriculture Organization (FAO).

Reflecting its stated commitment to the promotion of new technologies, the Indonesian government of President Susilo Bambang Yudhoyono has established a National Team for Biofuel Development (TIMNAS BBN). On January 9, 2007, TIMNAS BBN oversaw the signature of 67 contracts worth an estimated $17.4 billion for invest-ments in the renewable energy sector. Indonesia’s banks contributed $5bn, with the rest coming from domestic and foreign companies. China, Japan, Brazil, Malaysia and South Korea headed the list of investors from abroad.

There is little doubt that the industry will continue to grow. Indonesia plans to increase both its domestic use of biofuels and its exports to Europe (biodiesel) and Japan (bioethanol). Although some technical and trade-related issues still need to be resolved, the European Commission’s target of meeting 5.74 per cent of its trans port energy needs by 2010 with biofuels points to a sus tained interest in South-east Asian biofuels.

The good and the not so good news about biofuels

To many policymakers, researchers and companies, as well as to the general public and the media, biofuels represent a breath of fresh air in the midst of an energy debate often weighed down by dire predictions of envi ronmental cataclysms and geopolitical tensions. Biofuels have been touted as the answer to many modern evils and, certainly, they do present numerous advantages.

According to TIMNAS BBN, these renewable sources of energy emit fewer greenhouse gas emissions, do not pollute groundwater, are cheaper to make than gasoline, reduce dependence on imported fossil fuels and allevi-ate poverty by providing a boost to the local economy through increased exports and a strengthened domes-tic agricultural sector.

Environmental groups, however, fear that the indus-try does more damage than good to Indonesia’s natural heritage. Conservationists, for example, worry about the consequences of converting large portions of lush, bio-logically rich areas into monocultures. In a telephone interview with the OPEC Bulletin, Alhilal Hamdi countered this argument by saying that his government is avoiding deforestation by “prioritizing the conversion of unpro-ductive and degraded land” and by recommending that “15–20 per cent of crops” be farmed as “heterocultures”. Moreover, he said that cassava will only be farmed on land already given over for this purpose, while efforts are being made to increase the yield.

Some social groups have pointed to a rise in conflicts between farmers and corporations. Hamdi responded by saying that smallholders are given some advantages over companies (including lower interest rates on loans) to lessen any existing tensions.

Another response to these problems has been the establishment of the Roundtable on Sustainable Palm Oil (RSPO). Its members are private and state-owned companies involved at all stages of the palm oil industry, as well as environmental and social non-governmental organizations. By accepting the RSPO Principles & Criteria, members commit to abiding by “legal, economically via-ble, environmentally appropriate and socially beneficial management and operations.”

Hamdi stressed that Indonesia’s main objectives in expanding its biofuels industryare “to create jobs, reduce poverty, improve the environment and increase energy security,” in that order. Equally positive, the website of the Ministry for Energy and Mineral Resources highlights that its policies are “pro-poor, pro-job and pro-growth” and refers to their investment in biofuels as the “second energy awakening era.”

Aiming for anincreasingly diverse basket of resources

These are still early days for the biofuel industry. According to the International Energy Agency (IEA), biodiesel and bioethanol combined are only able to meet one per cent of global road-transport needs and only in Brazil, Cuba and Sweden did that share exceed two per cent in 2004. Moreover, the global share is only expected to grow by between four and seven per cent by 2030.

On January 2007, Indonesia stuck by its commitment to encourage the use of biofuels when it signed, together with other countries in the region, the Cebu Declaration on East Asian Energy Security. At the same time, the sig-natories acknowledged that “fossil fuels underpin our economies, and will be an enduring reality for our life-times.” This is a pragmatic and realistic position. Although biofuels do not constitute a functional alternative to fos-sil fuels in the short or medium term, they are likely to be integrated in an increasingly diverse basket of energy sources.

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